SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2000 Commission file number 1-5313
POTLATCH CORPORATION
(Exact name of registrant as specified in its charter)
A Delaware Corporation 82-0156045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 West Riverside Ave., Suite 1100
Spokane, Washington 99201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (509) 835-1500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X] No[ ]
The number of shares of common stock outstanding as of June 30, 2000:
28,428,284 shares of Common Stock, par value $1 per share.
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to Form 10-Q
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Statements of Earnings for the quarter and six
months ended June 30, 2000 and 1999 2
Condensed Balance Sheets at June 30, 2000
and December 31, 1999 3
Condensed Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 4
Notes to Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
1
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Earnings
Unaudited (Dollars in thousands - except per-share amounts)
------------------------------------------------------------------------------
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $428,840 $413,043 $867,423 $829,461
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 38,829 35,146 79,666 72,573
Materials, labor and other
operating expenses 328,763 314,663 675,149 640,712
Selling, general and
administrative expenses 33,132 34,917 66,272 66,796
Restructuring charge (Note 4) 26,000 - 26,000 -
------------------------------------------------------------------------------
426,724 384,726 847,087 780,081
------------------------------------------------------------------------------
Earnings from operations 2,116 28,317 20,336 49,380
Interest expense (14,627) (11,995) (28,678) (24,339)
Other income (expense), net* 409 (1,217) 234 (8,927)
------------------------------------------------------------------------------
Earnings (loss) before
taxes on income (12,102) 15,105 (8,108) 16,114
Provision for taxes on
income (Note 2) (4,720) 5,739 (3,162) 6,123
------------------------------------------------------------------------------
Net earnings (loss) $ (7,382) $ 9,366 $ (4,946) $ 9,991
==============================================================================
Net earnings (loss) per
common share (Note 3):
Basic $(.25) $ .33 $(.17) $ .35
Diluted (.25) .33 (.17) .35
Dividends per common share
(annual rate) 1.74 1.74 1.74 1.74
Average shares outstanding
(in thousands):
Basic 28,475 28,945 28,627 28,935
Diluted 28,475 28,982 28,627 28,947
------------------------------------------------------------------------------
<FN>
Certain 1999 amounts have been restated to conform to the 2000 presentation.
*Six months amount for 1999 includes a nonrecurring charge of $7.5 million
($4.6 million after tax) for expenses related to the termination of efforts
to form a timber real estate investment trust.
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
2000 amounts unaudited (Dollars in thousands -
except per-share amounts)
------------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 9,031 $ 11,531
Short-term investments 39 159
Receivables, net 205,844 184,312
Inventories (Note 5) 202,961 196,733
Prepaid expenses 21,831 23,767
------------------------------------------------------------------------------
Total current assets 439,706 416,502
Land, other than timberlands 9,044 9,073
Plant and equipment, at cost less
accumulated depreciation 1,615,535 1,616,055
Timber, timberlands and related
logging facilities 336,354 335,194
Other assets 75,431 69,676
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$2,476,070 $2,446,500
==============================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 138,265 $ 121,464
Current installments on long-term debt 324 10,323
Accounts payable and accrued liabilities 256,985 232,959
------------------------------------------------------------------------------
Total current liabilities 395,574 364,746
Long-term debt 751,513 701,798
Other long-term obligations 175,323 172,986
Deferred taxes 273,430 275,644
Put options 14,527 10,287
Stockholders' equity 865,703 921,039
------------------------------------------------------------------------------
$2,476,070 $2,446,500
==============================================================================
Stockholders' equity per common share $30.45 $31.79
Working capital $44,132 $51,756
Current ratio 1.1:1 1.1:1
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<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
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<CAPTION>
Six Months Ended
June 30
2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings (loss) $ (4,946) $ 9,991
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 79,666 72,573
Deferred taxes (2,214) 4,898
Working capital changes 2,293 24,898
Other, net (812) (124)
------------------------------------------------------------------------------
Net cash provided by operations 73,987 112,236
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Cash Flows From Investing
Decrease in short-term investments 120 -
Additions to investments (1,852) (3,535)
Reductions in investments 549 9,938
Receipt of note receivable - 50,000
Additions to plant and properties (72,749) (133,625)
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Net cash used for investing (73,932) (77,222)
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Cash Flows From Financing
Change in book overdrafts (4,091) (6,798)
Increase in notes payable 16,801 8,344
Proceeds from long-term debt 50,000 99,935
Repayment of long-term debt (10,284) (109,984)
Issuance of treasury stock 404 707
Purchase of treasury stock (21,818) -
Dividends (24,962) (25,170)
Other, net (8,605) (2,790)
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Net cash used for financing (2,555) (35,756)
------------------------------------------------------------------------------
Decrease in cash (2,500) (742)
Balance at beginning of period 11,531 11,650
------------------------------------------------------------------------------
Balance at end of period $ 9,031 $ 10,908
==============================================================================
<FN>
Net interest payments (net of amounts capitalized) for the six months ended
June 30, 2000 and 1999 were $28.7 million and $22.8 million, respectively. Net
income tax payments (refunds) for the six months ended June 30, 2000 and 1999
were $0.1 million and ($1.0) million, respectively.
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
Potlatch Corporation and Consolidated Subsidiaries
Notes to Financial Statements
(Dollars in thousands)
NOTE 1. GENERAL - The accompanying condensed balance sheets at June 30,
2000 and December 31, 1999, the statements of earnings for the quarter and
six months ended June 30, 2000 and 1999, and the condensed statements of
cash flows for the six months ended June 30, 2000 and 1999, have been
prepared in conformity with generally accepted accounting principles. The
management of Potlatch Corporation (the "company") believes that all
adjustments necessary for a fair statement of the results of such interim
periods have been included. All adjustments were of a normal recurring
nature; there were no material nonrecurring adjustments.
NOTE 2. INCOME TAXES - The provision for taxes on income has been computed
by applying an estimated annual effective tax rate. This rate was 39
percent for the quarter and six months ended June 30, 2000. The rate was 38
percent for the quarter and six months ended June 30, 1999.
NOTE 3. EARNINGS PER COMMON SHARE - Earnings per common share are computed
by dividing net earnings by the weighted average number of common shares
outstanding in accordance with FASB Statement No. 128, "Earnings Per Share."
The following table reconciles the number of common shares used in the
basic and diluted earnings per share calculations (in thousands):
Quarter Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
Basic average common shares
outstanding 28,475 28,945 28,627 28,935
Incremental shares due to common
stock options - 37 - 12
Incremental shares due to put
options - - - -
------ ------ ------ ------
Diluted average common shares
outstanding 28,475 28,982 28,627 28,947
====== ====== ====== ======
For the quarter and six months ended June 30, 2000, the computation of
diluted common shares would be antidilutive, therefore, the amounts reported
for basic and dilutive common shares are the same. Stock options to
purchase shares of common stock of 1,217,950 for the quarter and six months
ended June 30, 1999, were not included in the above computations because the
options' exercise prices were greater than the average market price of
common shares.
NOTE 4. RESTRUCTURING CHARGE - In June 2000 the company recorded a $26.0
million pre-tax charge to cover costs associated with a company-wide
reduction and reorganization in its salaried workforce. The after-tax
effect of the charge totaled $15.9 million or $.55 per diluted common share.
The charge is shown separately in the costs and expenses section in the
Statements of Earnings. A total of 290 salaried employee positions were
5
<PAGE>
affected by the reduction and reorganization. As of June 30, 2000, $1.7
million had been charged against the accrued liability. The company
anticipates annual pre-tax savings of $21 million as a result of the
reduction in force.
NOTE 5. INVENTORIES - Inventories at the balance sheet dates consist of:
June 30, 2000 December 31, 1999
Raw materials $ 83,966 $ 97,666
Work in process 6,620 11,147
Finished goods 112,375 87,920
-------- --------
$202,961 $196,733
======== ========
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Funding
Net cash provided by operations for the first six months of 2000, as
presented in the Condensed Statements of Cash Flows on page 4, totaled $74.0
million, compared with $112.2 million for the same period in 1999. The
decline was largely due to a decrease in net income of $14.9 million and a
smaller net change in working capital components compared to the first six
months of 1999.
The company's ratio of long-term debt to stockholders' equity was .87 to
1 at June 30, 2000, compared to .76 to 1 at December 31, 1999. Long-term
debt increased $49.7 million during the first half of 2000. The company's
credit lines enable it to classify up to $100.0 million of short-term
borrowings as long-term debt should the company choose to do so. Because of
this capability and the likelihood that $50.0 million of commercial paper
issued during the period will be outstanding for more than a year, that
amount has been classified as long-term debt. Stockholders' equity declined
$55.3 million for the period, primarily due to dividend payments of $25.0
million, treasury stock purchases of $21.8 million and a net loss of $4.9
million.
Working capital of $44.1 million at June 30, 2000, decreased $7.6
million from December 31, 1999. Increases in notes payable of $16.8 million
and in accounts payable and accrued liabilities of $24.0 million were
largely responsible for the unfavorable comparison. The negative effect of
these items on working capital was partially offset by increases in
receivables of $21.5 million, as well as a decrease in current installments
on long-term debt of $10.0 million.
Capital expenditures totaled $72.7 million for the first six months of
2000. Of this amount, the company spent $29.2 million in the wood products
segment, which included expenditures for the modernization and expansion at
the Cook, Minnesota, oriented strand board plant. Total spending in the
resource segment for the quarter equaled $9.1 million. The company spent
$12.6 million in the printing papers segment, the majority of which related
to the completion of the expansion project at the company's pulp mill in
Cloquet, Minnesota. Spending in the pulp and paper segment totaled $21.5
million for several environmental, safety and general replacement projects,
including a retrofit of the recovery boiler at the company's pulp mill in
Cypress Bend, Arkansas.
6
<PAGE>
Results of Operations
A summary of period-to-period changes in items included in the
statements of earnings is presented on page 10 of this Form 10-Q. Certain
1999 amounts have been changed to reflect changes in segment reporting.
<TABLE>
Segment Information (Dollars in thousands)
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<CAPTION>
Second Quarter Six Months
2000 1999 2000 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment Sales
Resource $ 69,608 $ 65,390 $ 158,166 $ 140,470
Wood products
Oriented strand board 57,609 61,600 113,992 106,094
Lumber 60,516 66,319 128,081 130,654
Plywood 14,056 17,211 31,178 33,682
Particleboard 4,204 4,237 8,966 8,000
Other 7,456 8,943 14,324 16,533
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143,841 158,310 296,541 294,963
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Printing papers
Printing papers 104,670 103,883 212,611 212,307
Pulp 10,838 - 19,667 -
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115,508 103,883 232,278 212,307
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Pulp and paper
Paperboard 98,655 86,563 197,705 182,140
Tissue 63,506 59,228 123,055 123,081
Pulp 4,707 6,266 9,963 12,322
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166,868 152,057 330,723 317,543
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495,825 479,640 1,017,708 965,283
Elimination of intersegment sales (66,985) (66,597) (150,285) (135,822)
------------------------------------------------------------------------------
Total consolidated net sales $428,840 $413,043 $ 867,423 $ 829,461
==============================================================================
Intersegment sales or transfers
Resource $ 63,397 $ 62,079 $ 142,754 $ 127,156
Wood products 3,300 4,506 6,981 8,631
Printing papers 275 - 522 -
Pulp and paper 13 12 28 35
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Total $ 66,985 $ 66,597 $ 150,285 $ 135,822
==============================================================================
Operating Income
Resource $ 11,957 $ 12,872 $ 24,740 $ 24,853
Wood products 13,929 29,300 29,657 36,363
Printing papers 3,711 (2,427) (423) (2,253)
Pulp and paper 6,531 (2,217) 9,875 2,877
Eliminations and adjustments (438) 754 (1,777) 4,174
------------------------------------------------------------------------------
35,690 38,282 62,072 66,014
Corporate* (47,792) (23,177) (70,180) (49,900)
------------------------------------------------------------------------------
Consolidated earnings (loss)
before taxes on income $(12,102) $ 15,105 $ (8,108) $ 16,114
==============================================================================
<FN>
* Includes a $26.0 million restructuring charge for the quarter and six months
ended June 30, 2000.
</TABLE>
7
<PAGE>
Earnings from operations for the second quarter of 2000, excluding the
restructuring charge, were slightly lower compared to 1999's second quarter.
Improved earnings from the company's pulp-based products were more than
offset by lower results for the company's wood products.
Additionally, in June the company recorded a $26.0 million pre-tax
charge to cover costs associated with a company-wide reduction and
reorganization in its salaried workforce. The after-tax effect of the
charge totaled $15.9 million or $.55 per diluted common share. The charge
is shown separately in the costs and expenses section in the Statements of
Earnings. A total of 290 salaried employee positions were affected by the
reduction and reorganization. As of June 30, 2000, $1.7 million had been
charged against the accrued liability. The company anticipates annual pre-
tax savings of $21 million as a result of the reduction in force.
Net earnings for the second quarter of 2000 were $8.5 million or $.30
per diluted common share, before the charge. Including the charge, the
company incurred a net loss of $7.4 million or $.25 per diluted common
share. Second quarter 1999 net earnings were $9.4 million or $.33 per
diluted common share. Net sales increased to $428.8 million from $413.0
million in the second quarter of 1999.
Net earnings for the first half of 2000 were $10.9 million or $.38 per
diluted common share, before the workforce reduction charge. Including the
charge, the company incurred a net loss of $4.9 million or $.17 per diluted
common share. Net earnings for the first half of 1999 were $14.6 million or
$.51 per diluted common share, before a nonrecurring after-tax charge of
$4.6 million taken in the first quarter. Including the charge, net earnings
for the first half of 1999 were $10.0 million or $.35 per diluted common
share. Net sales for the first half of 2000 were $867.4 million, compared
with $829.5 million for 1999's first half.
The resource segment reported operating income of $12.0 million for the
second quarter, down from the $12.9 million earned in the second quarter of
1999. The results reflect a lower volume of fee timber harvested in
Arkansas during the current quarter.
Operating income for the wood products segment was $13.9 million for the
second quarter of 2000, compared to $29.3 million earned in the second
quarter of 1999. Higher interest rates have slowed new home construction
activity, causing a decline in net sales realizations for most of the
company's wood products.
The printing papers segment recorded second quarter operating income of
$3.7 million, versus a loss of $2.4 million reported a year ago. Sales of
market pulp and an improvement in net sales realizations for printing papers
were largely responsible for the improved results. The company's printing
paper manufacturing facilities in Minnesota, including the pulp mill in
Cloquet, operated at improved levels compared to the first quarter of 2000.
The pulp and paper segment reported operating income for the second
quarter of $6.5 million, compared to a loss of $2.2 million for 1999's
second quarter. Higher net sales realizations for consumer tissue,
paperboard and pulp were primarily responsible for the favorable comparison.
8
<PAGE>
Other
This report contains, in addition to historical information, certain
forward-looking statements. These forward-looking statements are based on
management's best estimates and assumptions regarding future events, and are
therefore subject to known and unknown risks and uncertainties and are not
guarantees of future performance. The company's actual results could differ
materially from those expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, operating difficulties; changes in the
United States and international economies; changes in worldwide demand for
the company's products; changes in worldwide production and production
capacity in the forest products industry; competitive pricing pressures for
the company's products; and changes in raw material, energy and other costs.
9
<PAGE>
<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Changes in Statements of Earnings
(Dollars in thousands)
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
Increase Increase
2000 1999 (Decrease) 2000 1999 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Net sales $428,840 $413,043 4% $867,423 $829,461 5%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 38,829 35,146 10% 79,666 72,573 10%
Materials, labor and other
operating expenses 328,763 314,663 4% 675,149 640,712 5%
Selling, general and
administrative expenses 33,132 34,917 (5%) 66,272 66,796 (1%)
Restructuring charge 26,000 - * 26,000 - *
Earnings from operations 2,116 28,317 (93%) 20,336 49,380 (59%)
Interest expense (14,627) (11,995) 22% (28,678) (24,339) 18%
Other income (expense), net 409 (1,217) * 234 (8,927) *
Provision for taxes on income (4,720) 5,739 (182%) (3,162) 6,123 (152%)
Net earnings (loss) (7,382) 9,366 (179%) (4,946) 9,991 (150%)
<FN>
*Not a meaningful figure.
</TABLE>
10
<PAGE>
PART II
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the company held on May 18,
2000, the company's stockholders voted on four proposals as follows:
Proposal 1
Election of 3 Directors
For Withheld
Reuben F. Richards 48,933,073 821,111
Judith M. Runstad 48,949,169 805,015
Frederick T. Weyerhaeuser 48,928,632 825,552
Proposal 2
Approve the Potlatch Corporation 2000 Stock Incentive Plan
For 46,652,242
Against 1,965,114
Withheld 1,136,827
Proposal 3
Ratify the Selection of Independent Auditor
For 48,976,682
Against 130,732
Withheld 646,770
Proposal 4
Stockholder Proposal Urging Declassification of the Board of Directors
For 6,802,468
Against 40,927,574
Withheld 840,863
Non-Votes 1,183,278
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
The exhibit index is located on page 13 of this Form 10-Q.
Reports on Form 8-K
A current report on Form 8-K was filed, dated June 30, 2000. Under Item
5, Other Events, it was reported that the company would take a one-time pre-
tax charge of $26 million in the second quarter of 2000 to cover costs
associated with a company-wide reduction in force announced on May 19, 2000.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POTLATCH CORPORATION
(Registrant)
By /S/ G. L. Zuehlke
G. L. Zuehlke
Vice President, Finance, Chief
Financial Officer and Treasurer
(Duly Authorized; Principal
Financial Officer)
By /S/ T. L. Carter
T. L. Carter
Controller
(Duly Authorized; Principal
Accounting Officer)
Date: August 4, 2000
12
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Exhibit Index
Exhibit
PART II
(3)(c) By-laws, as amended through May 18, 2000.
(4) Registrant undertakes to file with the Securities and
Exchange Commission, upon request, any instrument with
respect to long-term debt
(10)(b) Potlatch Corporation Severance Program for Executive
Employees, as amended and restated as of December 1, 1999.
(10)(g) Potlatch Corporation Deferred Compensation Plan for
Directors, as amended through May 18, 2000.
13
